Krugman's Notes on Immigration

Paul Krugman follows up on his column on immigration:

Notes on Immigration, by Paul Krugman, Money Talks, NY Times: Immigration is an intensely painful topic for a liberal like myself, because it places basic principles in conflict. Should migration from Mexico to the United States be celebrated, because it helps very poor people find a better life? Or should it be condemned, because it drives down the wages of working Americans and threatens to undermine the welfare state? I suspect that my March 27 column will anger people on all sides; I wish the economic research on immigration were more favorable than it is.

In writing this piece I drew mainly on three sources, research papers by economists I know and trust. First is a paper, “Immigration Policy,” by Gordon H. Hanson (pdf) of the University of California at San Diego. Mr. Hanson is one of my former students, and a leading expert on all matters having to do with U.S.-Mexican economic relations, especially issues having to do with income distribution. This paper gives a good overview of the (small) gains from immigration and the fiscal impacts.

Second is a paper by George Borjas and Lawrence Katz of Harvard, “The Evolution of the Mexican-Born Workforce in the United States." (pdf). Mr. Borjas is a leading expert on immigration issues; Mr. Katz is one of America’s leading labor economists.

Third is a paper by Mr. Hanson, Matthew Slaughter of Dartmouth (another former student) and Kenneth Scheve (pdf) of the University of Michigan. This paper alerted me to the way immigration penalizes more generous states.

Like all research results, the conclusions of these papers may have to be revised in the light of future research. But I’m afraid that the three negative conclusions I stressed in the column are fairly robust.

First, the benefits of immigration to the population already here are small. The reason is that immigrant workers are, at least roughly speaking, paid their “marginal product”: an immigrant worker is paid roughly the value of the additional goods and services he or she enables the U.S. economy to produce. That means that there isn’t anything left over to increase the income of the people already here.

You might ask why, in that case, there are any gains from immigration. The answer is that when a country receives a lot of immigrants, the wage paid to immigrants reflects the marginal product of the last immigrant, which is less than that of earlier immigrants. So there is some gain. But as Mr. Hanson explains in his paper, reasonable calculations suggest that we’re talking about very small numbers, perhaps as little as 0.1 percent of GDP.

There is, by the way, a possible out from this argument in the case of high-skill immigrants. You could argue that, say, South Asian engineers who move to Silicon Valley add to the dynamism of the region, generating benefits much larger than their wages. (Economists know that I’m talking about “positive externalities.”) But that’s not an argument you can easily make about Mexican migrants who haven’t completed high school.

My second negative point is that immigration reduces the wages of domestic workers who compete with immigrants. That’s just supply and demand: we’re talking about large increases in the number of low-skill workers relative to other inputs into production, so it’s inevitable that this means a fall in wages. Mr. Borjas and Mr. Katz have to go through a lot of number-crunching to turn that general proposition into specific estimates of the wage impact, but the general point seems impossible to deny.

Finally, the fiscal burden of low-wage immigrants is also pretty clear. Mr. Hanson uses some estimates from the National Research Council to get a specific number, around 0.25 percent of G.D.P. Again, I think that you’d be hard pressed to find any set of assumptions under which Mexican immigrants are a net fiscal plus, but equally hard pressed to make the burden more than a fraction of a percent of G.D.P.